Shell Could Halt Operations Offshore Brunei

Shell might follow Total's lead and put drilling operations offshore Brunei on hold until the dispute between Malaysia and Brunei has been resolved. The deepwater area under dispute is part of the Exclusive Economic Zone (EEZ). Total recently halted all offshore on Brunei's Block J after a Malaysian patrol boat forced one of the company's drilling vessels to leave.

One of the two political parties in Brunei has issued a statement supporting the Brunei Government in its border dispute with Malaysia concerning the offshore blocks. The president of Parti Perpaduan Kebangsaan Brunei (PPKB), Hj Mohd Hatta bin Hj Zainal Abidin, said his party treated the recent statement made by the Malaysian Foreign Minister Syed Hamid Albar seriously regarding the overlapping claim by Brunei and Malaysia on the deep water offshore territory, the Exclusive Economic Zone. He added the party regretted the move taken by the Malaysian Government in sending its navy to enter the disputed territory. "PPKB was made to understand that the allotment of EEZ Block J and K had been agreed by all parties. Representatives of Petronas and Murphy Oil Corp even attended the official announcement of the Brunei new exploration petroleum areas. "PPKB was also informed that Petronas had also offered the deepwater exploration contract at Block L and M in Malaysian waters near and bordering the Brunei EEZ to Murphy and Petronas Carigali Sdn Bhd," Hj Mohd Hatta said. He further added that according to Brunei map survey report, the MC3D Deepwater Survey of Brunei, the dimensional EEZ area of Brunei's deepwater offshore is about 10,104 sq km. "According to existing records, the study, research and exploration works at Brunei EEZ deepwater territory had been conducted in 1972 and up to now Brunei has 10 oil wells located there. "Since 1972 the Malaysian Government had not disputed the oil-finding and exploration activities and there is no reason why it should do now especially after all the initial and preparatory groundwork towards commercial exploration had been done by Brunei," Hj Mohd Hatta said.

The Malaysia-Brunei dispute will most likely affect other oil and gas exploration projects in the area. The Brunei government is expected soon to approve explorations rights it has agreed to with a Shell Deepwater-led consortium in Block K, in what it claims to be its Exclusive Economic Zone. The Shell-led venture also includes ConocoPhillips and Mitsubishi. Shell will most likely not begin work in Block K until there is clarity regarding the territorial issue. Shell also has various subsidiaries in both Brunei and Malaysia and is unlikely to start operations in the disputed area to avoid antagonizing both the Malaysian and Brunei governments. Shell Malaysia is the main exploration and production company in Sabah and Sarawak, operating in both continental shelf and deepwater concessions. Shell Brunei operates four concessions, three in production phases and one in exploration, in Brunei's offshore shallow waters.

Block K overlaps with Block M, which the Malaysian government has also awarded to Murphy Oil and Petronas Carigali. More than half of the two Malaysian blocks overlap the blocks awarded by Brunei government. The four blocks with different names are essentially the same two blocks. Murphy Oil has drilled a well in Block L. Murphy and Petronas Carigali have yet to begin offshore exploration work in Block M. "We're doing research and studies now for Block M, and the plan is go ahead with the offshore work once the ground work is done," a Petronas Carigali official said.